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Where to look for credit, funding for minority-owned business

Dear Your Business Credit, I'm an African-American considering starting a business but need to raise some startup funds. I am in my 20s and have a limited credit history. I have a full-time job and have been on time in paying my student loans. Do you know of any programs to help minority entrepreneurs? -- John

Dear John, It's smart to research funding opportunities in the current lending climate. Though there are signs that it is improving, getting a business loan is still not easy. The Global Entrepreneurship Monitor 2012 United States Report , published by Babson College and Baruch College, found that most entrepreneurs fund their businesses with their own savings and money from friends and family. For those in the 25- to 34-year-old category, the study found the median startup funding level was $12,000.

If you want to raise money in this ballpark, you may need to continue working for a while to build up some savings, given that you are paying off student loans at the same time. Friends and family may be more likely to back your business if they see you have put in your own money, too. Credit cards can help you cover temporary purchases for your business, but should not be your main method of financing.

There are no grants from state and federal agencies for minority-owned businesses, according to the U.S. Small Business Administration. However, the SBA does list a number of helpful programs for minority entrepreneurs seeking financing on its website. The list includes a number of loan programs offered in individual states. If you are looking for a loan up to $50,000, you might consider turning to a microlender such as Accion , which does outreach to minorities, women and other entrepreneurs who have had trouble accessing credit.

Often, microlenders offer programs to help small businesses develop skills such as marketing, which may help you to raise the profile of your business in a way that's helpful in attracting investors later, if you want to go that route. Loans from microlenders often carry higher interest rates than traditional SBA-backed small business loans. You may want to talk with several microlenders to see which one offers the best deal and other services that may help your business. The SBA publishes a list of affiliated microlenders .

Although you are making your student loan payments on time, those loans may be affecting your overall debt-to-income ratio , and therefore, your credit score. Waiting until you have paid off your student loans to apply for a business loan -- and opting for other forms of financing in the meantime -- may be your best option, allowing you to get a better deal on a loan.

Crowdfunding through sites such as Kickstarter, Indiegogo, Rockethub, Crowdfunder or Fundable is also an option. It can be a good choice if you have built a strong social media following for your business.

Crowdfunding sites typically cater to creative businesses in fields such as design, music, photography, gaming or other niches where fans are likely to be passionate enough to want to donate money. Fans pledge small amounts of money as donations, and you don't have to pay them back. However, they are likely to want to get regular progress reports on how you are doing in growing the business, so this method can take a fair amount of time.

You might also consider joining some local business groups in your area, such as an entrepreneurs' Meetup group , to find out how others are raising money and to ask about local programs aimed at promoting minority entrepreneurship. They may be able to give you the inside scoop on the pipelines to capital that other entrepreneurs in your community are tapping, such as groups of wealthy private investors known as angels.

Before you seek funding, make sure you have a strong business plan. Many states have Minority Business Development Centers (MBDCs) , where you can get business training and assistance. To give you an example of the services, offered, the Florida MBDC offers help with doing financial projections, a break-even analysis for your business, loan packaging, business plan writing and other tasks that will help you position yourself for a loan.

Generally, you'll be better off trying to raise money after you have some evidence that customers are willing to buy your product or service. Test marketing your offerings on a limited basis, whether on an ecommerce site or at local fairs, will help you gather sales data that lenders and investors will want to see. The more quickly your business turns a profit, the better your chances of raising funds.

See related: Are there any special financing resources for women entrepreneurs?